Bond Mutual Funds

Bond Mutual Funds

o The IMF predicts that the US economy will slow down.

o Prospects for Western Europe and Japan are not very good either.

o Headline inflation has increased in both advanced and emerging economies.

o The price of oil has doubled in the last six months.

o There is the possibility of a deeper economic recession.

o The stock markets of most countries have crashed in recent times.

These phrases are not something new to regular newspaper readers, especially financial newspapers. The whole world would have been affected by the consequences of these statements. In tough times like these, where would you put your money? Stock Market – No, that would be suicidal! Banks: the rate of return would be too low. Then where?

One possible place is mutual funds. They are much safer than stocks and outperform banks. But one must be careful when choosing a mutual fund during times of recession. It is always better to invest in bonds during the recession. It guarantees regular interest payments and possible capital appreciation when bond prices rise. Bond mutual funds allow you to do just that.

As their name suggests, these funds invest in bonds and debt securities. Its objective is to protect the capital invested and, at the same time, guarantee regular income from Advanced Payment Bond  the payment of interest. Like any other mutual fund, they also have a Net Asset Value (NAV) which is the value of each share in the mutual fund. It is nothing more than what must be paid to obtain a share of the fund or what is obtained when a share is sold.

5 reasons to invest in bond mutual funds:

1. They are much less risky than stocks.

2. They provide stability

3. They are diversified: the portfolio will be made up of many different bonds, which will reduce the risk of default and guarantee regular payments.

4. Some of them are exempt from federal or state taxes.

5. They are more liquid than bonds.

Among these advantages, the last is the most important. It is the reason why one should buy bond mutual funds rather than individual bonds. They can be easily bought and sold in smaller units. On the other hand, it is not so easy to buy bonds and hold them. Bonds are not as liquid as bond funds. Therefore, it is better to buy bond mutual funds rather than bonds.

TYPES OF BOND FUNDS

There are many different types. Of these, some of the main ones are government (or federal bond funds), municipal, corporate, etc.

Government bond funds

They invest in government-issued debt securities, such as Treasury bills, Treasury bonds, Treasury notes, mortgage-backed securities issued by government agencies, etc. Some of them are also exempt from state and / or local taxes.